The first chapter of this dissertation studies a repeated interaction between a regulator and a regulated firm. In each period, the firm completes a project for the regulator, and the regulator observes the project's cost. The firm's intrinsic cost level is a component of the project's cost. Thus, the regulator gathers information about the firm's intrinsic cost level by observing the project's cost. This information is valuable to the regulator; the more she knows about the firm's intrinsic cost level, which is fixed over time, the more efficient is the outcome of their interaction in each period. An important feature of the interaction is that the project's cost is stochastic; that is, the firm has imperfect control over the project's cost. The firm determines the expected project cost by choosing its effort, but a noise term determines the cost realization. The first chapter demonstrates that the regulator's first period contract choice determines how much she learns about the firm's intrinsic cost level. The main contribution of the first chapter is to show that, given a reasonable assumption about the distribution of noise, the low cost firm's first period effort is lower than his second period effort. This result aligns with anecdotal, experimental and empirical evidence of the ratchet effect.The second chapter examines an interaction that is similar to the first chapter, with one important difference: the agent's productivity, which is akin to his intrinsic cost level in the first chapter, is positively correlated over time, rather than fixed. Unlike the standard ratchet effect literature, the low productivity agent has an incentive to reveal information to the principal. If the high ability agent is not too much more productive than the low ability agent, or if the high productivity agent is sufficiently likely ex-ante, the optimal first period contract restricts what the principal learns about the agent's first period type.The third chapter considers a two period contracting problem between one principal, one agent, and an outside labor market. In the first period, the principal hires the agent to exert unverifiable effort on a project that may either succeed or fail. Effort can be high or low. In the second period, the labor market makes the agent a wage offer if the project is successful. The principal has the opportunity to match the outside offer, or let the agent leave the firm. When the agent leaves the firm, the principal incurs a cost of replacing the agent.The agent is ``self motivated.'' That is, the expected value of the outside offer is high enough that the agent prefers high effort to low effort in the absence of an incentive wage. When the cost of replacing the agent exceeds a certain threshold, the principal prefers low effort to high effort, even though the agent is self motivated.
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